Democratic News

May062003

Today, we are beginning our second attempt on the Senate floor in two Congresses to craft an improved and more comprehensive national energy policy.
Last year, the Senate passed a comprehensive energy bill by a vote of 88-11. That was a strong, bipartisan vote for a bill that took a balanced approach to energy supply, energy efficiency, and important issues centrally related to energy such as climate change.
Let me congratulate Senator Domenici on his success in bringing this bill to the floor today. I appreciate the courtesy that he afforded me during the Committee process. In spite of that process, though, we are beginning with a bill, at this point, at least, that might not command the same broad level of support as last year. I voted against this bill as it came out of Committee because I didn't think it was a sufficiently balanced and comprehensive package. I am hopeful that, by the time we are finished with floor consideration of the bill, the reservations that I and nearly every other Democratic member of the Energy Committee had will be addressed.
There can be no doubt that America needs a comprehensive and balanced energy policy for the 21st century. Even President George W. Bush, when he ran for office in 2000, spoke of the need for such a comprehensive energy policy. Within three weeks of taking office in early 2001, he had commissioned Vice President Cheney to lead a task force to develop an improved national energy policy.
The President was right when he stated the need for such a policy. During the 1990s, energy prices had remained relatively stable, due to increased productivity, lower energy use per dollar of GDP, and the introduction of market competition in sectors such as electricity. All of these factors acted to hold down prices, in spite of robust economic growth and increasing demand for energy.
Before the introduction of competition into energy markets in the 1980s and 1990s, we had national policies that resulted in large excess capacity margins. Consumers paid a lot for that past excess capacity, but they also benefitted from the buffer that it provided. It kept the system functioning as markets restructured. As the economic growth of the last decade used up that excess capacity in the fuels, power, and natural gas sectors, the frictions and imperfections in those markets became more apparent.
One illustration of that development was the California electricity crisis. When electricity was in plentiful supply in the West, the flaws in the design of the California electricity system – specifically the discouragement of long-term contracts and the near-total reliance on the spot market to set electricity prices – were not so apparent. But when electricity suddenly became more scarce in 2000, due to unusually dry weather and increased demand in other Western States, these market flaws came to the fore. The result was very high prices for electricity and extraordinary financial stress on both California's regulated utilities and their customers. These market flaws were exacerbated by the unscrupulous behavior of a number of energy marketers and inadequate initial responses by regulators. Even so, we shouldn't lose sight of the overall lesson. The loss of our energy infrastructure "cushion" means that future events will more easily highlight whatever energy market or regulatory flaws exist. That makes it more important than ever for us to have a comprehensive national energy policy that proactively deals with market flaws before they result in a crisis.
In the energy policy plan issued by President Bush in May of 2001, his Administration laid out a series of goals and objectives that I thought made a lot of sense in terms of a proactive energy policy. Some of the themes he hit were very similar to conclusions reached by a number of individual States that have formulated and adopted their own energy policies over the past several years.
The President's proposal, though, came to Congress in a very generic fashion, and without any legislative specifics. At no time during the last Congress, or during this Congress, did we ever receive an actual legislative proposal on energy from the Bush Administration. The task of taking the President's general statements and fashioning them into specifics has fallen to both the House of Representatives and Senate, which have interpreted those general principles in some very different ways. That proved to be a decisive factor in our inability to come to closure on energy legislation last Congress.
The approach that I took in crafting a Senate energy bill in the last Congress, and which was supported in the end by a strong bipartisan majority of 88 Senators, was based on a number of basic principles. I believe that these basic principles are crucial to any energy legislation that we might consider. The bill now before us deals with them only in part.
First, and perhaps most important, we need an energy policy, and an energy bill, that strikes a balance between measures to increase energy supplies and measures to encourage additional energy efficiency. To say that we need only increase energy production, or that we need only increase conservation, is to pose a false choice. The reality is that our country needs both kinds of measures.
On the energy supply side, perhaps one of the most important national needs is to meet our ever-growing demand for natural gas. Natural gas is the fuel of choice for most electric generation that is now being planned. It will play an important role in any new distributed generation that is planned in the future. It is favored by alternative fuel vehicle programs in both the government and private sector. It is the most likely feedstock to produce hydrogen, when and if we come to use hydrogen as a fuel. And apart from its energy uses, natural gas is also a critical feedstock for the petrochemical and fertilizer industries.
Because natural gas consumption is outstripping the amounts produced in the lower 48 States, we as a nation are in the early stages of developing a national dependence on imported natural gas, particularly liquified natural gas from countries with unstable politics. So, just as we have, for several decades, become more dependent on imported oil, we face a growing dependence on imported natural gas. At the same time, we have at least 33 trillion cubic feet of natural gas stranded on the North Slope of Alaska at Prudhoe Bay. That gas has been produced along with the oil that we now produce from that location. But the gas is currently being pumped back into the ground, because there is no way to transport it to the Lower 48 where it is needed. We need to provide effective incentives to the private sector to build a pipeline that can bring this gas to the lower 48 States. Such a project would be a boon not only to our national energy security, but also to our domestic steel and construction industries. On this topic, the bill now before us does a pretty good job. It has retained from last year's bill the regulatory streamlining measures for the Alaska gas pipeline that I worked out with Senator Frank Murkowski. There is a critical part of the problem not yet solved, and that is to provide effective fiscal incentives for the pipeline, to accompany what is now in the bill on the regulatory side. I hope we can add those effective fiscal incentives as we consider this bill on the floor.
Along with providing more robust domestic supplies of natural gas, we should look for ways to diversify our energy generation away from such a strong reliance on gas. Here, the bill before us is less successful.
One important arena in which we can diversify our energy generation away from over-reliance on gas is in electricity generation. Part of what must be done is to find new technology for existing sources of electricity supply. This means R&D on ultra-clean ways to burn coal, and R&D on a new generation of safe nuclear power plants. This bill, like last year's energy bill, does have strong R&D programs on both topics, and Chairman Domenici deserves credit for those provisions.
Another key piece of the solution would be to tap into opportunities for distributed generation such as combined heat and power at industrial facilities. Here, the bill begins to fall short, as it does not really address the barriers that have been erected to uniform interconnection of distributed generation to the grid. It is not enough to have the technology. We need to rid ourselves of the red tape that is keeping this technology from being used, and this bill does not do that.
Along with these steps, though, we must make a greater push to introduce renewable energy technologies for electricity generation. Some of these technologies, such as wind power, are already cost-competitive. But in order to see widespread exploitation of these opportunities, both financial and regulatory incentives will be needed. That means both a meaningful production tax credit for renewable energy and a flexible renewable portfolio standard for electric utilities. Both measures are essential, in my view, in order to give enough certainty to the fledgling market to allow economies of scale to drive down costs and improve manufacturing capacity for renewable energy equipment in the United States.
The lack of an effective renewable portfolio standard in this bill is a major flaw. There are those that may argue that we should just leave everything up to the hypothetical free market. The only problem is that electricity markets aren't free markets, and renewable energy won't get a fair shake unless there is some pressure from us to do so. If the Senate does nothing in this bill to push forward on increasing renewables in our electric system, then we will be making a choice in favor of the existing trends towards an over-reliance on natural gas for future electric generation. That choice will leave our citizens with future natural gas and electricity prices that are more volatile, resulting in more frequent price spikes.
Renewable energy technologies can help with another energy supply issue that we face, that of transportation fuels. We already use renewable fuels such as ethanol to some degree as oxygenates in the winter formula for gasoline. But ethanol can make a greater contribution than this. A phased-in introduction of up to 5 billion gallons of ethanol per year into our gasoline supply, by 2012, is not unreasonable. What we need to do, though, as we attempt such a transition, is to ensure that we don't wind up with a highly balkanized and inflexible system of fuel specifications around the country. We already have a problem with so-called "boutique" fuel specifications in several parts of the country. These mandates for "boutique" fuels periodically result in regional price spikes to consumers when the region-specific fuel is in short supply. That can easily happen, for example, due to unexpected increase in demand or a shutdown at a refinery or pipeline. Our national energy policy should be to use the transition to greater use of renewable fuels as a means of making sure we have a more rational national fuels system. This whole issue was not dealt with during the consideration of the bill in the Energy Committee, even though a renewable fuels mandate is in the Committee's jurisdiction. As the Chairman indicated, it is expected that we will be dealing with it here on the floor.
Even with the greater use of renewable fuels in cars, we will still be very dependent on oil in the transportation sector. It is our national interest to support domestic production of oil. Many of our oil resources are not as economic to produce as those in the Middle East and elsewhere. This is largely because the United States has been producing oil longer than most other places around the world, and we have exhausted the easiest geologic formations. When oil prices fall, our domestic producers lose their shirts faster than their competitors overseas, and stop producing. When prices start back up, though, their wells cannot be restarted as easily.
An important policy to put in place, at both the Federal and State level, would be to reduce taxes on oil production during times of low world prices, and restore those taxes when prices rebound. Those sort of counter-cyclical measures would help us retain a significant amount of domestic production that otherwise would be at risk. In the Finance Committee, such incentives are part of a bipartisan package that I expect will be added to this bill during the Senate's consideration.
We should also look to increase oil production in areas where it is generally accepted. There are places, like the Arctic National Wildlife Refuge, that have special environmental values that make oil production very controversial. Both last year and this year, a solid bipartisan majority of the Senate has voted against opening the Arctic Refuge to oil development. I hope that we don't waste any time during our floor debate re-opening this issue.
The proposal to open the Arctic Refuge is a dead-end precisely because there are many areas with significant amounts of oil and gas that are not environmentally exceptional.
For example, Alaska is also home to a Federal reserve called the "National Petroleum Reserve - Alaska," or NPRA. No less an environmentalist than Bruce Babbitt strongly pushed for leasing of the NPRA for oil production when he was Secretary of the Interior. He found strong industry interest, and there have been significant finds in this region. We should continue to support further leasing of NPRA as part of our national energy policy.
As another example, energy resources on Indian land in the United States have not been as extensively developed as they might be. According to the Bureau of Indian Affairs, over 90 Indian reservations have significant untapped energy resource potential, including oil and gas, coal and coal-bed methane, wind, and geothermal resources. In last year's energy bill, I worked to see that we assisted Indian tribes in developing these resources. Early this year, I reintroduced most of those provisions in a new bill, parts of which are incorporated into the bill now before the Senate. Unfortunately, these good provisions have been marred by a proposal to make energy leasing on Indian lands both exempt from environmental analysis under NEPA, and exempt from the normal trust protections afforded to Indian tribes. This is a critical flaw that needs to be addressed if the bill is to keep its balance among energy, environment, and the public interest.
Even with strong efforts to support domestic oil production, we are in a losing race with rising domestic oil consumption. We have gone from less than 25 percent dependence on foreign oil at the time of the Arab Oil Embargo to over 50 percent today, with projections of over 60 percent dependence a decade from now.
That brings us to the other important part of national energy policy, energy efficiency.
If we are serious about reducing our dependence on foreign oil, we have to address our ever-increasing national consumption of oil in the transportation sector. Greater vehicle fuel efficiency is clearly in the national interest. According to a study Congress commissioned from the National Academy of Sciences, we now have the technology to realize significant gains in fuel efficiency without sacrificing safety or passenger comfort. All that we lack is the national will to make this a priority. That will was not on display in the last Congress, when the Senate and House took only minimal steps to set higher standards for automobile fuel efficiency. It is similarly not on display in the bill now before us. In fact, this bill contains a provision that will increase gasoline demand over current law by 11 billions gallons by 2020. I don't know how we justify passing a bill that takes us in the wrong direction on our energy security.
Greater fuel efficiency is an answer to another energy problem that is brewing. We are pretty close to the capacity limits of our present system of refineries and gasoline pipelines. Refineries and pipelines are notoriously hard to site – we have not built a new petroleum refinery in this country in decades, and there are real limits to how much further we can add on to the existing ones. Unless we want to greatly add to the siting pressures we already have related to energy infrastructure, or unless we want to start importing much more refined gasoline than we now do, we need to push for more efficient use of the gasoline we already consume.
Energy efficiency is also a key element in maintaining a reliable and affordable system of electricity generation and transmission. New electricity infrastructure is also very difficult to site, and President Bush's call for Federal eminent domain for new electricity transmission has not found many supporters in Congress. We can reduce the pressure on our electric power grid and natural gas infrastructure by taking common-sense steps to improve the efficiency of end-use of energy in buildings, appliances, and industry. Energy efficient lighting, appliances, and buildings also generate benefits in terms of emission reductions and human health improvements, making them even more attractive as part of a comprehensive energy policy.
One of the unheralded success stories of last year's energy bill was a set of new standards and programs for energy efficiency that was developed cooperatively with the affected industries. These provisions were retained and slightly expanded in the bill that was reported from the Energy Committee.
Last year's energy bill also reauthorized important federal grant programs that help low-income families pay their energy bills and reduce their energy costs, including LIHEAP and State weatherization grants. Those programs must continue to be a high priority in any new energy legislation, and I hope we can add an effective measure along these lines early in our deliberations on this bill.
Our national commitment to increasing energy supply and increasing energy efficiency must involve a long-term commitment to the development of new energy technologies. Last year's energy bill established a framework for a comprehensive research, development and deployment program that would have addressed a variety of challenges on both the supply and demand sides of the energy equation. A robust commitment to a coordinated, comprehensive research and development program is essential if we are to meet the challenges that lie before us. One of the biggest disappointments of the Bush Administration to date is its lack of attention to the importance of science and technology in general, and of energy R&D in particular. With the exception of the President's recent enthusiasm for hydrogen and fuel cells, the Bush Administration has consistently underfunded DOE energy technology programs, relative to their importance to our national security. Federal energy technology R&D today is equivalent, in constant dollars, to what it was in 1966. Yet, our economy is 3 times larger today than it was in 1966. It’s hard to see how you build a 21st century energy system on 1960's-level-of-effort R&D budgets.
Fortunately, Congress sees things differently. Last year and this, energy bills in both the House and Senate have attempted to rebuild energy R&D budgets in a rational way to levels that, by 2007 or 2008, would give us a robust energy R&D effort to support our national energy policy.
A final imperative for national energy policy and legislation has be to recognize the ways in which energy use, and energy policy, is intertwined with the topic of climate change.
Climate change is so closely related to energy policy because the two most prominent greenhouse gases–carbon dioxide and methane–are largely released due to energy production and use. In the United States, 98 percent of CO2 emissions are energy-related. Every study of how to mitigate the possibility of global climate change comes up with a list of policy measures that relies heavily on increased energy efficiency and new energy production technologies with lower greenhouse gas emissions.
Because of this intimate connection, much of energy policy and much of climate change policy has to be discussed together. To do one is, by implication, to do the other. And to ignore one while doing the other is to risk unfortunate and unintended consequences.
For this reason, the Senate last year passed an energy bill with numerous provisions to ensure that we integrate climate change strategy with energy policy; that we develop better climate change science; that we focus on breakthrough energy technologies with better environmental performance; and that the United States take the lead in exporting the clean energy technologies we develop.
These provisions were not propounded by fringe elements in the Senate. The bulk of them came from a bill that was introduced by Senators Robert C. Byrd of West Virginia and Ted Stevens of Alaska, and that was reported unanimously by the Senate Committee on Governmental Affairs.
Unfortunately, these provisions were resisted by the Administration and strongly opposed by the House Republican leadership, which did not propose to address climate change in any way in the House energy bill. These provisions were also opposed in the Energy Committee by a vocal minority of our Committee, and I regret that their views carried the day with their colleagues.
I think that leaving climate change out of an energy bill is a very short-sighted approach, both in terms of energy policy and in terms of our overall relations with the rest of the world.
The climate change proposals I plan to advance will focus on programs that would protect the environment while being highly beneficial to U.S. industry. We need to make sure that our energy choices do not lead to inefficient or wasted energy investments that have to be written off prematurely because we did not consider their climate consequences. Industry needs to have certainty about the rules of the road linking energy and climate. In terms of our long-term economic prosperity, there are jobs to be created and worldwide markets to be captured in climate-friendly energy technologies of the future.
So far, the energy bill that we are considering does not measure up on this important issue. I believe that many in this body share my view that addressing global warming is a major element required for any sort of balanced energy policy.
Before I close, let me discuss one of the most difficult and contentious issues we dealt with in both last year's energy bill and this year's bill. That was the problem of how to regulate electricity markets in the future.
Our system for generating and transmitting electricity has been undergoing a profound transformation over the last decade, as electricity markets become increasingly regional. That increases the degree to which consumers are affected by interstate commerce in electricity, and thereby by factors that may be beyond the effective reach of State regulatory utility commissions. During the California electricity crisis, we saw how decisions made in or for California affected consumers across the entire West. Well functioning and well regulated markets are in everyone's interest, although the way to get there was a matter of intense debate during the consideration of the energy bill, and is being strongly debated now in the context of FERC's so-called "Standard Market Design" rulemaking, or SMD.
During last year's energy bill, I favored attempts to update the statutes governing electricity markets, including repeal of the Public Utility Holding Company Act (or PUHCA), but only if they were accompanied by provisions to ensure that any resulting mergers or acquisitions would be in the public interest, and to maintain the ability of State PUCs to protect consumers against cross-subsidization and other abuses. There were others in the debate who wanted to remove all fetters from the merger and acquisition process, particularly any oversight that might be exercised by FERC or State commissions. That latter view of untrammeled mergers is what is now in the bill before us. I think that is a bad deal for consumers, and I hope we can address it during our deliberations on this bill.
The bill also overreaches, in my view, in its response to the Standard Market Design rulemaking. There are a lot of important issues that need to be examined carefully before that rulemaking moves forward, and like many of my colleagues in the Senate, I am carefully examining the extent to which FERC is responding to the many comments and criticisms leveled at its proposed rule.
But amid the furor over SMD, I think it is important not to be distracted from the big picture of whether consumers are going to be adequately protected in the electricity markets of the future. How the grid is operated, how new transmission is paid for and by whom, how we will ensure that there is a reasonable mix of short-term spot markets and long-term contracts – all these factors require careful consideration and regulatory clarity, if consumers are to be protected and if utilities and other entities are to make sound decisions that can be sustained over the long term.
It is unfortunate that the electricity provision in the bill was considered and adopted in committee without having been adequately reviewed by all Senators on the committee. I don't think that was a good way of proceeding on a topic as important, controversial, and complex as this one. As a result, the electricity title contains numerous flaws that I think will result in increased divisions in the Senate, instead of pointing the way toward bringing us together.
Energy does not need to be a partisan issue. As was demonstrated by the strong bipartisan vote we had on the Senate energy bill in the last Congress, there is much that Democrats and Republicans can agree on.
But we have not reached that point of bipartisan agreement yet in this bill. We will have an opportunity to do better now that the bill is on the floor. I look forward to the amendment process to see if some of the flaws in this bill can be remedied. I hope that the result will be a strong and balanced package for the nation that I and other members of my caucus can support.
# # #